Privatization: Bechtel I
In a post on one of my groups, I asked about the Fair Tax model of economics. The privatization of essential services to corporate entities was a tangential topic that drew some interest. I would like to reintroduce this topic here.
I live 50 miles north of Boston and there has been much ado about the Big Dig and the poor job done by private contractors during the project for many years now. It seemed to indicate a definite drawback to privatization. So, I decided to look at one of the private engineering corporations in charge of the project.
The Big Dig is a giant, 10-lane tunnel that runs under the city of Boston's streets. The project was contracted to Bechtel and Parsons Brinkerhoff in 1985. State oversight of the project was taken over in 2000 by former Massachusetts Secretary for Administration and Finance Andrew Natsios, who left that post to become director of USAID, (the agency that, incidentally, later hired Bechtel to rebuild Iraq war damaged Iraqi infrastructure.)
The Big Dig has been the most expensive highway project in the U.S. Although the project was estimated at $2.8 billion in 1985, the actual cost was over $14.6 billion that had been spent by 2006. There have been criminal arrests, death, leaks, quality concerns, safety violations and use of substandard materials. The Massachusetts Attorney General sought a refund of $108 million from the contractors.
A report issued by the Massachusetts State Inspector General said that Bechtel actively participated "in the promulgation of misleading reports to the state Legislature, "to obscure Big Dig costs." The report also claimed that "the Turnpike Authority which oversees the Big Dig, relies too much on the Bechtel team…and has not held it responsible for errors"
The project was concluded on December 31, 2007, when the partnership between contractor Bechtel/Parsons Brinckerhoff and the Massachusetts Turnpike Authority ended.
If I go to Boston I will seek alternate routes. This example of apparent corporate malfeasance and incompetence could stand on it's own as a caution against the use of at least Bechtel in the future. That, however, is not an option.
Bechtel has close associations with politicians that guarantee that it receives lucrative contracts regardless of its record or character. For example the Massachusetts Secretary for Administration and Finance Andrew Natsios, who left that post to become director of USAID.
The United States Agency for International Development (or USAID) is the United States federal government organization responsible for most non-military foreign aid. An independent federal agency, it receives overall foreign policy guidance from the United States Secretary of State and seeks to "extend a helping hand to those people overseas struggling to make a better life, recover from a disaster or striving to live in a free and democratic country."
USAID states that "U.S. foreign assistance has always had the twofold purpose of furthering America's foreign policy interests in expanding democracy and free markets while improving the lives of the citizens of the developing world."
It has often been suggested that the US government gives aid to reward political and military partners rather than "extend a helping hand to those people overseas struggling to make a better life, recover from a disaster or striving to live in a free and democratic country."
In April 2003, USAID announced that Bechtel won a cost-plus-fixed-fee contract worth up to $680 million to rebuild Iraqi infrastructure.
By September 2003, USAID announced that, due to the poor infrastructure and deteriorating stability in Iraq, Bechtel would receive an additional $350 million on the contract, raising the contract's potential ceiling to $1.03 billion.
Bechtel Corp. went to Iraq in 2003. It was hired to rebuild the war devastated country. By 2006 52 of its people killed, executed. Others were kidnapped. There were the wounded. Its work sabotaged. Bechtel has left.
"Did Iraq come out the way you hoped it would?" asked Cliff Mumm, Bechtel's president for infrastructure work. "I would say, emphatically, no. And it's heartbreaking."
Bechtel was paid 2.3 billion dollars to do the job. However the escalating violence and the hard hostile environment ate up the money as Bechtel amped up security by purchasing armored vehicles and supplying fortifications to its camps. Eventually many projects were stopped because of collapsing security, rendered dangerous and unable to be maintained.
"That's really an under-told story -- we've stopped the reconstruction," said Frederick Barton, co-director of the Post-Conflict Reconstruction Project at the Center for Strategic & International Studies think tank. "There are some things we're still finishing up, but we're wrapping up, and we're stepping back. It's really a tragedy."
What exactly did Bechtel accomplish in its three years in Iraq?
-- The company helped repair 14 electrical generation units, built four new ones and created 25 substations around Baghdad.
-- It restored eight sewage plants and built one.
-- A canal bringing drinking water to Basra, Iraq's second-largest city, was dredged and its pumps restored. Seventy small water treatment plants were installed in rural areas.
-- Airports in Baghdad and Basra were repaired to handle civilian flights. The country's international shipping port -- Umm Qasr -- was dredged and its grain elevator refurbished.
-- Baghdad telephone switching stations knocked out during the war were restored, and the country's phone network was reconnected to the outside world.
-- War-damaged bridges on key highways were rebuilt.
(And this is the one that I like.)
-- Almost 1,240 schools were refurbished with new paint, fans and in many cases new windows and doors to replace those looters had stolen.
But many of these accomplishments were undone as security evaporated.
For example, Bechtel added 1,280 megawatts to the nation's power grid and improved the reliability of another 480 megawatts. In the United States, that much energy could light more than 1.3 million homes.
But Iraq's entire power system this summer produced 4,400 megawatts, just 442 megawatts more than before the invasion.
In some cases, the power plants have had trouble getting stable fuel supplies. In others, repaired plants were cut off from the national grid by sabotaged power lines. At one point a series of coordinated attacks severed Baghdad from power generated in the rest of the country, leaving the city's 7 million residents with only a few hours of electricity each day.
Cost and time overruns were enormous. A project, in Basra, favored by Laura Bush, a state-of-the-art children's hospital, was supposed to cost $50 million. Bechtel later stated that the hospital would take far more money and time to complete. Bechtel says the hospital now would cost $98 million. The project was suspended. Federal auditors blame USAID for not reporting the project delays and costs to Congress. They also say the figure is probably higher.
Twice the price and dangerous to boot:
Bechtel's hospital site security manager was murdered.
The site manager resigned after death threats.
Bechtel's senior Iraqi engineer quit. His daughter was kidnapped.
Twelve electricians and plumbers were killed.
Eleven concrete workers died.
Why, beyond the profiteering to be accomplished, didn't Bechtel pull out?
Mumm said the company constantly reviewed security and was convinced that it could keep its people safe.
"We didn't stay under duress," he said. "I think all of our people got in it, got involved in it, and no one wants to leave a job half-done."
Munn insisted that Bechtel did accomplish something in Iraq. The electrical or sewage plants that have broken down can be repaired and made to function, if, and it's a big if, peace and stability ever return and qualified people can be found.
The Special Inspector General for Iraq Reconstruction (SIGIR), is a congressionally mandated office that has oversight of all U.S. spending on Iraq reconstruction.
It's oversight has shown certain facts to be inconsistent with claims made by Bechtel. For example, the company reports that it rebuilt "war-damaged bridges on key highways." But SIGIR's October report to Congress finds that "no bridge or expressway projects have been completed" in Iraq.
Bechtel also claims that it failed to build a key maternal and children's hospital in Basra because of "security concerns." While SIGIR, on the other hand, makes clear that it ordered Bechtel to be dropped from the $50 million project after the company misreported its progress and went $90 million over budget and a year and a half behind schedule.
SIGIR's report shows the overall failure of U.S. reconstruction in Iraq.
In the electricity sector, less than half of all planned projects in Iraq have been completed, while 21 percent have yet to even begin. The term "complete," however, can be misleading as, for example, SIGIR finds that the electricity sector has been hampered by the failure of contractors to build transmission and distribution lines to connect new generators to homes and businesses. Thus, nationally, Iraqis have just 11 hours on average of electricity a day, and in Baghdad, the heart of instability in Iraq, there are between four and eight hours on average per day.
While there has been greater success in completing water and sewage projects (79 percent are complete), electricity controls both water and sewage in Iraq. Therefore, the fact that 80 percent of potable water projects are reported complete does little good if there is no electricity to pump the water into homes, hospitals or businesses.
The health care sector is truly a tragedy, with just 36 percent of planned projects reported complete. Just 12 of 20 planned hospitals are complete, while only six of 150 planned public health centers are serving patients today.
What went wrong? U.S. Air Force Col. Sam Gardiner, author of a U.S. government study of the likely effect that U.S. bombardment would have on Iraq's power system in 2003, answered the question well when he said, "Frankly, if we had just given the Iraqis some baling wire and a little bit of space to keep things running, it would have been better. But instead we've let big U.S. companies go in with plans for major overhauls."
With political connections to spread the wealth around. Paul Simon
Bechtel's political connections dates back to the early part of the Twentieth century when Stephen D. Bechtel partnered with John A. McCone, who went on to become chief of the CIA under President John F. Kennedy and introduced the Bechtels to many influential figures.
In the 1970s, Bechtel hired : former Secretary of Health, Education and Welfare Casper Weinberger (who would leave in 1980 to serve as Reagan's Defense Secretary); Atomic Energy Commission chief executive Robert Hollingsworth; former ambassadors, and retired military officers.
In 1998, Bechtel hired former Marine four-star general Jack Sheehan as senior vice president. Sheehan served as NATO's Supreme Allied Commander Atlantic and Commander in Chief of the U.S. Atlantic Command. Sheehan served as Special Adviser for Central Asia for two U.S. defense secretaries and currently also sits on a Pentagon-appointed board that advises it on defense issues, the Defense Policy Board.
Charles "Chuck" Redman, former ambassador to Sweden and Germany and special envoy to Haiti and Yugoslavia.
Richard Helms former CIA director and ambassador to Iran.
Bennett Johnston, board member of Nexant Inc., the energy consultancy branch of Bechtel and ex U.S. Senator from oil-rich Louisiana from 1972 to 1997, and author of the Energy Policy Act of 1992.
Big Guns for Bechtel.
Their biggest score was George P. Shultz. Fleeing the collapse of the Nixon administration in 1974, ex Treasury Secretary Shultz joined Bechtel as its executive vice president. Shultz paused in his association with Bechtel after he was appointed secretary of state by President Ronald Reagan. He reentered Bechtel's employ in 1989.
WMDs
On March 16 and March 17, 1988, Iraq dropped poison gas on the Kurdish city of Halabja. The attack on the Iraqi town involved multiple chemical agents, including mustard gas, and the nerve agents sarin, tabun and VX. Some sources have also pointed to the blood agent hydrogen cyanide.
Shultz rejoined Bechtel in 1989 as a member of its board of directors. Upon returning, he learned that the company had a $2 billion contract for management of an Iraqi petrochemicals plant. This plant manufactured ethylene oxide, a chemical used in the production of plastics.
U.S. chemical experts pointed out, however, that the chemical could also be used to manufacture mustard gas. Shultz recommended Bechtel pull out of the project.
If we go looking for weapons of mass destruction again maybe we should first ask Bechtel.
The USAID contracts in Iraq were guaranteed profit contracts. I take that to mean that the actual money used after the guaranteed profits had been siphoned off. Cost overruns would be measured from the money remaining after the profit had been removed from the equation. Any additional money needed would be based on the shortfalls of revenue available for the project excluding the guaranteed profit. My understanding might be faulty or an over simplification.
But it looks like a pretty sweet deal to me.
Especially since they never finished the job.
Too many casualties, you know.
There is a part 2 to this.
I live 50 miles north of Boston and there has been much ado about the Big Dig and the poor job done by private contractors during the project for many years now. It seemed to indicate a definite drawback to privatization. So, I decided to look at one of the private engineering corporations in charge of the project.
The Big Dig is a giant, 10-lane tunnel that runs under the city of Boston's streets. The project was contracted to Bechtel and Parsons Brinkerhoff in 1985. State oversight of the project was taken over in 2000 by former Massachusetts Secretary for Administration and Finance Andrew Natsios, who left that post to become director of USAID, (the agency that, incidentally, later hired Bechtel to rebuild Iraq war damaged Iraqi infrastructure.)
The Big Dig has been the most expensive highway project in the U.S. Although the project was estimated at $2.8 billion in 1985, the actual cost was over $14.6 billion that had been spent by 2006. There have been criminal arrests, death, leaks, quality concerns, safety violations and use of substandard materials. The Massachusetts Attorney General sought a refund of $108 million from the contractors.
A report issued by the Massachusetts State Inspector General said that Bechtel actively participated "in the promulgation of misleading reports to the state Legislature, "to obscure Big Dig costs." The report also claimed that "the Turnpike Authority which oversees the Big Dig, relies too much on the Bechtel team…and has not held it responsible for errors"
The project was concluded on December 31, 2007, when the partnership between contractor Bechtel/Parsons Brinckerhoff and the Massachusetts Turnpike Authority ended.
If I go to Boston I will seek alternate routes. This example of apparent corporate malfeasance and incompetence could stand on it's own as a caution against the use of at least Bechtel in the future. That, however, is not an option.
Bechtel has close associations with politicians that guarantee that it receives lucrative contracts regardless of its record or character. For example the Massachusetts Secretary for Administration and Finance Andrew Natsios, who left that post to become director of USAID.
The United States Agency for International Development (or USAID) is the United States federal government organization responsible for most non-military foreign aid. An independent federal agency, it receives overall foreign policy guidance from the United States Secretary of State and seeks to "extend a helping hand to those people overseas struggling to make a better life, recover from a disaster or striving to live in a free and democratic country."
USAID states that "U.S. foreign assistance has always had the twofold purpose of furthering America's foreign policy interests in expanding democracy and free markets while improving the lives of the citizens of the developing world."
It has often been suggested that the US government gives aid to reward political and military partners rather than "extend a helping hand to those people overseas struggling to make a better life, recover from a disaster or striving to live in a free and democratic country."
In April 2003, USAID announced that Bechtel won a cost-plus-fixed-fee contract worth up to $680 million to rebuild Iraqi infrastructure.
By September 2003, USAID announced that, due to the poor infrastructure and deteriorating stability in Iraq, Bechtel would receive an additional $350 million on the contract, raising the contract's potential ceiling to $1.03 billion.
Bechtel Corp. went to Iraq in 2003. It was hired to rebuild the war devastated country. By 2006 52 of its people killed, executed. Others were kidnapped. There were the wounded. Its work sabotaged. Bechtel has left.
"Did Iraq come out the way you hoped it would?" asked Cliff Mumm, Bechtel's president for infrastructure work. "I would say, emphatically, no. And it's heartbreaking."
Bechtel was paid 2.3 billion dollars to do the job. However the escalating violence and the hard hostile environment ate up the money as Bechtel amped up security by purchasing armored vehicles and supplying fortifications to its camps. Eventually many projects were stopped because of collapsing security, rendered dangerous and unable to be maintained.
"That's really an under-told story -- we've stopped the reconstruction," said Frederick Barton, co-director of the Post-Conflict Reconstruction Project at the Center for Strategic & International Studies think tank. "There are some things we're still finishing up, but we're wrapping up, and we're stepping back. It's really a tragedy."
What exactly did Bechtel accomplish in its three years in Iraq?
-- The company helped repair 14 electrical generation units, built four new ones and created 25 substations around Baghdad.
-- It restored eight sewage plants and built one.
-- A canal bringing drinking water to Basra, Iraq's second-largest city, was dredged and its pumps restored. Seventy small water treatment plants were installed in rural areas.
-- Airports in Baghdad and Basra were repaired to handle civilian flights. The country's international shipping port -- Umm Qasr -- was dredged and its grain elevator refurbished.
-- Baghdad telephone switching stations knocked out during the war were restored, and the country's phone network was reconnected to the outside world.
-- War-damaged bridges on key highways were rebuilt.
(And this is the one that I like.)
-- Almost 1,240 schools were refurbished with new paint, fans and in many cases new windows and doors to replace those looters had stolen.
But many of these accomplishments were undone as security evaporated.
For example, Bechtel added 1,280 megawatts to the nation's power grid and improved the reliability of another 480 megawatts. In the United States, that much energy could light more than 1.3 million homes.
But Iraq's entire power system this summer produced 4,400 megawatts, just 442 megawatts more than before the invasion.
In some cases, the power plants have had trouble getting stable fuel supplies. In others, repaired plants were cut off from the national grid by sabotaged power lines. At one point a series of coordinated attacks severed Baghdad from power generated in the rest of the country, leaving the city's 7 million residents with only a few hours of electricity each day.
Cost and time overruns were enormous. A project, in Basra, favored by Laura Bush, a state-of-the-art children's hospital, was supposed to cost $50 million. Bechtel later stated that the hospital would take far more money and time to complete. Bechtel says the hospital now would cost $98 million. The project was suspended. Federal auditors blame USAID for not reporting the project delays and costs to Congress. They also say the figure is probably higher.
Twice the price and dangerous to boot:
Bechtel's hospital site security manager was murdered.
The site manager resigned after death threats.
Bechtel's senior Iraqi engineer quit. His daughter was kidnapped.
Twelve electricians and plumbers were killed.
Eleven concrete workers died.
Why, beyond the profiteering to be accomplished, didn't Bechtel pull out?
Mumm said the company constantly reviewed security and was convinced that it could keep its people safe.
"We didn't stay under duress," he said. "I think all of our people got in it, got involved in it, and no one wants to leave a job half-done."
Munn insisted that Bechtel did accomplish something in Iraq. The electrical or sewage plants that have broken down can be repaired and made to function, if, and it's a big if, peace and stability ever return and qualified people can be found.
The Special Inspector General for Iraq Reconstruction (SIGIR), is a congressionally mandated office that has oversight of all U.S. spending on Iraq reconstruction.
It's oversight has shown certain facts to be inconsistent with claims made by Bechtel. For example, the company reports that it rebuilt "war-damaged bridges on key highways." But SIGIR's October report to Congress finds that "no bridge or expressway projects have been completed" in Iraq.
Bechtel also claims that it failed to build a key maternal and children's hospital in Basra because of "security concerns." While SIGIR, on the other hand, makes clear that it ordered Bechtel to be dropped from the $50 million project after the company misreported its progress and went $90 million over budget and a year and a half behind schedule.
SIGIR's report shows the overall failure of U.S. reconstruction in Iraq.
In the electricity sector, less than half of all planned projects in Iraq have been completed, while 21 percent have yet to even begin. The term "complete," however, can be misleading as, for example, SIGIR finds that the electricity sector has been hampered by the failure of contractors to build transmission and distribution lines to connect new generators to homes and businesses. Thus, nationally, Iraqis have just 11 hours on average of electricity a day, and in Baghdad, the heart of instability in Iraq, there are between four and eight hours on average per day.
While there has been greater success in completing water and sewage projects (79 percent are complete), electricity controls both water and sewage in Iraq. Therefore, the fact that 80 percent of potable water projects are reported complete does little good if there is no electricity to pump the water into homes, hospitals or businesses.
The health care sector is truly a tragedy, with just 36 percent of planned projects reported complete. Just 12 of 20 planned hospitals are complete, while only six of 150 planned public health centers are serving patients today.
What went wrong? U.S. Air Force Col. Sam Gardiner, author of a U.S. government study of the likely effect that U.S. bombardment would have on Iraq's power system in 2003, answered the question well when he said, "Frankly, if we had just given the Iraqis some baling wire and a little bit of space to keep things running, it would have been better. But instead we've let big U.S. companies go in with plans for major overhauls."
With political connections to spread the wealth around. Paul Simon
Bechtel's political connections dates back to the early part of the Twentieth century when Stephen D. Bechtel partnered with John A. McCone, who went on to become chief of the CIA under President John F. Kennedy and introduced the Bechtels to many influential figures.
In the 1970s, Bechtel hired : former Secretary of Health, Education and Welfare Casper Weinberger (who would leave in 1980 to serve as Reagan's Defense Secretary); Atomic Energy Commission chief executive Robert Hollingsworth; former ambassadors, and retired military officers.
In 1998, Bechtel hired former Marine four-star general Jack Sheehan as senior vice president. Sheehan served as NATO's Supreme Allied Commander Atlantic and Commander in Chief of the U.S. Atlantic Command. Sheehan served as Special Adviser for Central Asia for two U.S. defense secretaries and currently also sits on a Pentagon-appointed board that advises it on defense issues, the Defense Policy Board.
Charles "Chuck" Redman, former ambassador to Sweden and Germany and special envoy to Haiti and Yugoslavia.
Richard Helms former CIA director and ambassador to Iran.
Bennett Johnston, board member of Nexant Inc., the energy consultancy branch of Bechtel and ex U.S. Senator from oil-rich Louisiana from 1972 to 1997, and author of the Energy Policy Act of 1992.
Big Guns for Bechtel.
Their biggest score was George P. Shultz. Fleeing the collapse of the Nixon administration in 1974, ex Treasury Secretary Shultz joined Bechtel as its executive vice president. Shultz paused in his association with Bechtel after he was appointed secretary of state by President Ronald Reagan. He reentered Bechtel's employ in 1989.
WMDs
On March 16 and March 17, 1988, Iraq dropped poison gas on the Kurdish city of Halabja. The attack on the Iraqi town involved multiple chemical agents, including mustard gas, and the nerve agents sarin, tabun and VX. Some sources have also pointed to the blood agent hydrogen cyanide.
Shultz rejoined Bechtel in 1989 as a member of its board of directors. Upon returning, he learned that the company had a $2 billion contract for management of an Iraqi petrochemicals plant. This plant manufactured ethylene oxide, a chemical used in the production of plastics.
U.S. chemical experts pointed out, however, that the chemical could also be used to manufacture mustard gas. Shultz recommended Bechtel pull out of the project.
If we go looking for weapons of mass destruction again maybe we should first ask Bechtel.
The USAID contracts in Iraq were guaranteed profit contracts. I take that to mean that the actual money used after the guaranteed profits had been siphoned off. Cost overruns would be measured from the money remaining after the profit had been removed from the equation. Any additional money needed would be based on the shortfalls of revenue available for the project excluding the guaranteed profit. My understanding might be faulty or an over simplification.
But it looks like a pretty sweet deal to me.
Especially since they never finished the job.
Too many casualties, you know.
There is a part 2 to this.
Comment
-
Comment by Bambi on February 2, 2008 at 1:53pm - This kind of privatization is how the groups in power suck money out of the US Treasury. If folks care about their social security and the ability of the children and grandchildren to receive benefits and good public services (sewer and water, etc.) they should work to stop this kind of privatization.
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